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Howrey LLP
The stimulus package, also known as the American Recovery and Reinvestment Act, has been touted by many members of Congress as the mechanism for reducing U.S. dependence on foreign oil by investing in renewable energy production and for improving the environment by reducing diesel emissions and cleaning-up hazardous waste sites, leaking underground storage tanks, and polluted industrial and commercial sites.
However, companies receiving monies from the stimulus package will be subjected to heightened scrutiny and tougher requirements for transparency in spending and accountability.
Along with the billions of dollars allocated to energy and the environment, the act created the “Recovery Accountability and Transparency Board,” commonly referred to as the “RAT” Board, which has been assigned the responsibility to root-out fraud, waste and abuse in the expenditure of stimulus dollars. Of the $787 billion to be plowed into the economy, $350 million was allocated to the RAT Board and the offices of Inspector General for many of the major federal agencies.
Based on its composition, it is clear that the RAT Board will have a law enforcement bent. President Obama appointed Earl Devaney as the RAT Board’s Chairman. Mr. Devaney is a former Secret Service agent who later, as Inspector General of the Interior Department, had a hand in uncovering the scope of disgraced lobbyist Jack Abramoff’s corrupt dealings with federal officials.
The other members of the board are the Inspector Generals from the Departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Homeland Security, Justice, Transportation and Treasury and of Tax Administration.
A key tool in promoting transparency and accountability is the recovery effort’s Web site, www.recovery.gov, which promises to provide transparency to the public about the manner in which stimulus dollars are spent and a mechanism for the public to report fraud, waste and abuse. Tips received from the Web site likely will be referred to one of the Inspector Generals and then possibly to the FBI or a U.S. Attorney’s office for further investigation and criminal prosecution.
While accountability in the manner in which such significant sums of taxpayer money are spent is laudable and necessary, it is unclear what these authorities will consider “waste” and “abuse” sufficient to further investigate companies receiving stimulus funds.
When it comes to criminal fraud, there are well-defined statutes, standards of intent and constitutional precedents to which the government must adhere when prosecuting a criminal case. Similarly, when bringing a case under the civil False Claims Act, 31 USC §3729, et seq., the government or whistleblower must prove that the defendant acted knowingly, with deliberate ignorance or in reckless disregard of the truth or falsity of the information provided to the government.
What conduct constitutes “waste” and “abuse” is considerably less clear, as are the potential consequences when waste and abuse is uncovered that falls short of the defined standards under existing federal criminal and civil fraud statutes.
Compounding the uncertainty is the reliance the RAT Board may place on the information received from tipsters through its Web site. One person’s allegation of waste and abuse can be another’s innovative attempt to solve a highly complex technical problem.
To reduce the risk of becoming a RAT Board target, companies receiving stimulus dollars should implement employee training and compliance programs that include standards of conduct similar to what already is required of federal government contractors. Examples of waste and abuse specific to the firm’s projects should be included in the training program so that employees understand and have tangible examples of what constitutes fraud, waste and abuse in the context of their company.
Employees should be encouraged to report misconduct, including waste and abuse, and procedures should be instituted to address those complaints and concerns. If fraud, waste and abuse are detected, it would be advisable for companies to have a system and structure in-place for reporting the misconduct to management, including in-house counsel, and procedures for evaluating, remedying and self-reporting the alleged misconduct to the government. Self-reporting of questionable conduct already is required of government contractors. When misconduct is detected, outside counsel can assist in conducting a thorough internal investigation and provide legal advice on the manner in which the alleged misconduct should be reported to the government.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
©2009 Howrey LLP
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